Will Lenders Pay for the Mortage Crisis?

If your community has been largely affected by the foreclosure rates around your home, you might be wondering how this could have happened and who will be held responsible for our real estate market mess. After all, someone must have foreseen the mortgage issues headed towards many of these former hot real estate markets. Why was nothing done sooner to prevent the huge losses?

In fact, many real estate market experts have been vocal about the negative impact of the mortgage loans. However, despite warnings, many novice homeowners or uneducated buyers have found themselves in financial quagmires that are impossible to solve. As foreclosures are rising and our economy slows, lawmakers are turning their attention towards the mortgage lenders who originally propped up the cards to watch it all fall down.

Specifically, a Senate subcommittee has been formed to investigate the possibility that mortgage lenders abused the bankruptcy code to file loans for individuals who would not have qualified for the money previously. By misusing the bankruptcy system, mortgage lenders and companies were able to impose high fees whose legality is questionable. In addition, these high fees and misuse of the bankruptcy system directly played into the foreclosure problems that many homeowners are currently facing.

In essence, the Senate subcommittee is looking into whether mortgage lenders and companies intentionally played towards people who were too ignorant or overwhelmed to truly understand what financial situation they were getting into. By concentrating too highly on the property, but underplaying the fine print in the mortgage loan, these institutions were blatantly acting fraudulently and requesting too much money from individuals who simply did not have it. Although the mortgage lenders were aware that they were placing a nearly-impossible financial situation on these homeowners, they are accused of not exercising ethic restraint by giving out these loans.

The Senate subcommittee will look into not only past actions by these mortgage lenders and institutions for penalties, but also increase the level of penalties given to those lenders who manipulate the bankruptcy law for their own financial gain – and consequent ruin of other investors.

Originally, bankruptcylaws were initiated to give homeowners with financial issues the chance to keep their homes. However, with the questionably high fees demanded by these mortgage lenders and institutions, the ability to pay off the home was impossible, despite the bankruptcy protection clause. For this reason, more and more people were permanently removed from their homes while certain mortgage lenders and institutions pocketed the money.

One reason for the subcommittee investigation comes on the heels of a sharp increase in foreclosure filings. With an increase of 112 percent since last year, lawmakers are concerned that the problem will grow even worse as many mortgages will be reset and increased this year, causing numerous people who are just barely hanging on to lose control completely. With these extra fees putting the homeowner in a worse position and having them fall even more behind, the mortgage institutions are under direct scrutiny over the legality of these fees and their execution.